USD/JPY drops to 3-week lows near 108.70

• USD/JPY loses further the grip and tests 108.70.
• US 10-year yields stay depressed near 1.60%.
• US advanced Retail Sales expanded 9.8% MoM in March.

The trend lower in US yields keep weighing on the dollar and drags USD/JPY to fresh multi-week lows in the 108.70/65 band on Thursday.

USD/JPY apathetic post-US data

USD/JPY has been on the defensive since Monday and continues to track the downtrend in US yields, particularly the 10-year benchmark, which puts the key 1.60% level to the test so far in the second half of the week.

In fact, spot has been trading on a negative fashion as investors’ sentiment steers away from the US economy outperformance narrative and looks to the progress of the economic revery in the Old Continent.

In the meantime, yields and the buck remain unable to gather fresh buying interest despite stellar figures from the US calendar on Thursday: Initial Claims rose by 576K WoW during last week, headline Retail Sales expanded at a monthly 9.8% in March and Core Sales rose 8.4% MoM.

Further upbeat data showed the Philly Fed Manufacturing Index improving to 50.2 for the current month and the NY Empire State Index bettering to 26.30 in the same period.

Later in the session, US Industrial/Manufacturing Production is due followed by the NAHB Index, Capacity Utilization and TIC Flows. Moving forward, FOMC’s Bostic, Daly and Mester are also due to speak.

What to look for around JPY

The 4-month positive streak in USD/JPY met resistance in the 111.00 neighbourhood so far (March 31), bringing to a halt the strong bounce off January’s lows in the mid-102.00s. The pair’s bull run was mainly bolstered by the improved sentiment in US yields, which in turn was underpinned by higher inflation expectations in the US. Also favouring the selling pressure in the Japanese yen, the mega-loose stance from the BoJ – which is seen in place for the foreseeable future – has been reinforced at the latest event, while speculative net longs in the safe haven have been scaled back strongly in past weeks.

USD/JPY levels to consider

As of writing the pair is losing 0.12% at 108.79 and faces the next support at 108.40 (low Mar.23) seconded by 107.85 (50-day SMA) and then 105.71 (200-day SMA). On the upside, a surpass of 110.96 (2021 high Mar.31) would aim to 111.71 (monthly high Mar.24 2020) and finally 112.22 (2020 high Feb.20).